Post-Closing Trial Balance: Videos & Practice Problems

A post-closing trial balance is a financial statement that lists all the permanent accounts and their balances after closing entries have been made. It ensures that total debits equal total credits after the closing process. This trial balance includes only balance sheet accounts, such as assets, liabilities, and equity, because all temporary accounts like revenues, expenses, and dividends have been closed to retained earnings. Essentially, it resembles a balance sheet and serves as the starting point for the next accounting period.

Temporary accounts, such as revenues, expenses, and dividends, are not included in the post-closing trial balance because they are closed at the end of the accounting period. Closing entries transfer the balances of these temporary accounts to retained earnings, resetting their balances to zero for the new accounting period. This process ensures that only permanent accounts, which carry their balances forward, are included in the post-closing trial balance.

The post-closing trial balance closely resembles the balance sheet because it includes only permanent accounts, which are the same accounts listed on the balance sheet. These accounts include assets, liabilities, and equity. Since all temporary accounts have been closed, the post-closing trial balance effectively serves as a snapshot of the company's financial position at the end of the accounting period, similar to the balance sheet.

The equation for retained earnings in the post-closing trial balance is:

$\mathrm{BBRE}+\mathrm{Net}-\mathrm{Dividends}=\mathrm{Ending}\mathrm{Balance}\mathrm{Retained}\mathrm{Earnings}$

Here, BBRE stands for Beginning Balance Retained Earnings. This equation shows that the ending balance in retained earnings is calculated by adding net income and subtracting dividends from the beginning balance of retained earnings.

To prepare a post-closing trial balance, follow these steps:

1. Complete the adjusted trial balance.
2. Record closing entries to transfer balances from temporary accounts (revenues, expenses, dividends) to retained earnings.
3. Post the closing entries to the general ledger.
4. Prepare the post-closing trial balance by listing all permanent accounts (assets, liabilities, equity) and their balances.
5. Ensure that total debits equal total credits in the post-closing trial balance.

This process ensures that the company's books are ready for the next accounting period.